Anti-abuse tax clauses: one clause follows another…!
In the 2019 Finance Act, the French legislature has inserted a general corporate income tax (CIT) anti-abuse clause designed to prohibit companies from implementing arrangements whose principal objective is, or whose principal objectives include, the obtainment of a tax advantage.
The administration has just confirmed that the date on which the arrangement was set up is irrelevant to the assessment of whether the general anti-abuse clause is applicable: the clause applies to any transaction that has an impact on the calculation of corporate income for fiscal years begun on or after 1 January 2019.
But the legislature, which was clearly quite inspired last year, did not stop there! It also extended the “abuse of law” procedure (French Tax Procedure Code (TPC), Art. L64) to arrangements that are principally tax-driven (TPC, Art. L64 A). And that is not all: at the same time, the anti-abuse clause set forth in Article 210 A of the French General Tax Code (GTC) relating to mergers and similar transactions remains unchanged!
It is therefore difficult to navigate through these rules… and the administration’s recently published commentary attempts to offer some guidance.
The commentary specifies how the CIT “anti-abuse clauses” interact with each other and confirms that, for CIT purposes, the general CIT anti-abuse clause applies to all transactions except for those covered by Article 210-0 A of the GTC. Moreover, the general CIT anti-abuse clause “coexists” with the Article L64 abuse of law procedure, as that procedure is independent. But the general CIT anti-abuse clause is exclusive of the procedure provided for in Article L 64 A of the TPC.
Will this clarification be enough to reassure economic actors and to give them the legal certainty they are entitled to expect in order to properly conduct their businesses? Nothing could be less sure!
Indeed, the tax administration has remained intentionally vague about its method for assessing whether the obtained tax advantage was a “principal” objective, asserting that this will be measured “in proportion to all of the gains or advantages of any kind obtained by means of the arrangement in question.” Does this leave too much discretionary freedom to the tax inspector and, afterwards, to the courts? While awaiting the first tax reassessment notices and court decisions, it is clear that companies will have to continue to take the appropriate steps of preparation and documentation.
The Tax Technical Division